How to solve the retirement riddle

In his final Mind over Money column, Nigel Latta looks at why our natural optimism can be our enemy.

For most of human history, 15 was pretty old. If you made it that far, you were doing pretty well. We used to die so young we didn’t need to think ahead much because there wasn’t much future to think about.

But 80 is the new 15, and this new human thing of being around for eight or nine decades means we’re forcing our brains to think in timeframes they’re just not used to.

When we look into the future we have a tendency to think things will be great.

It’s called optimism bias, and it’s part of what makes people great, but it’s also a reason why we might not save enough for retirement.

Just look at what humans have done throughout human history. We’ve migrated to every part of the world.

We live in environments that are just mad.

There are people who live in deserts and people who live in the high Arctic.

You have to be pretty optimistic to encounter a desert which is just sand and say, ‘You know what? I reckon we can make a go of this. This could be a thing!’

Yes, we’re curious. Yes, we’re wanderers, but some of that is optimism too.

It’s what gets us out of bed in the morning to face the day.

If it wasn’t for optimism bias, none of us would ever start a business, because most businesses fail.

Optimism bias has been useful throughout human history, but you also have to have a plan B.

You can’t let your brain navigate your life on autopilot because it will make mistakes.

There’s another bias that can get in the way of retirement planning. It’s called present bias. Humans have a real bias towards what’s happening here and now. That served a real function for our ancestors, focusing them on surviving day to day in a dangerous world. Now it gets in the way. Our attention’s always drawn to what’s happening now. We find it hard to imagine the future, and to plan for it.

It’s also hard for us to imagine our future selves, and when we do, they feel like strangers to us.

I think the brain’s trying to protect us.

Death, and getting old, are hard for humans to get our heads around.

When you try to think of yourself as being old, when you’re a young person, it seems like complete madness.

What our brains do is tell us: ‘‘Don’t worry, that’s never going to happen with you. The future me isn’t me, because I will never be old.’’

When it comes to retirement planning, what your brain is naturally going to do is change the subject. It’s going to tell you, ‘‘This is nothing to do with you, so you don’t have to worry about it’’.

Anything you can do to force your brain to think purposely about the future takes your brain off automatic pilot, puts your pre-frontal cortex in the driving seat.

The marvellous thing about humans is we evolved our prefrontal cortex. We are pretty good at planning stuff, which is how we built these great civilisations.

So at the end of all this the biggest thing I’d want people to take away from our Mind Over Money series is you can’t trust your brain.

You can’t let your brain navigate your life on autopilot because it will make mistakes, and do things that aren’t in your best interests.

I also hope the series makes people feel better about the irrational things they do with money.

Everybody does irrational things with money. This is just being human. But you have to be active to counter that, and it’s more important now than ever.

I was lucky. I was part of that generation who had tailwinds their whole life.

I bought a house when it was cheaper. I was a student when there were no student loans. It’s been much easier for me to get my financial affairs in order than for young people starting out today.

We didn’t talk about it in the show, but it’s a pretty good idea to sit down with someone whose job it is to make financial plans.

If it’s not knowledge or skills you have, it can be a really useful thing to do; just like if you were worried about your diet, you go and see a nutritionist.

Then you can tick that job off as done. Mind Over Money, Monday 8pm TVNZ 1, or catch up TVNZOnDemand.